Banco de Brasil

Lower-than-expected growth in Brazil and New Zealand have prompted their central banks to maintain rates; in South Korea, “greatly decreased” inflation motivated the hold decision, in spite of a “continued upward trend” in growth.

Brazil’s monetary policy committee, Copom, kept the Selic rate at 10.75 per cent, hinting that a rate cut might have been on the cards were it not for recent macroprudential policies, whose effects on monetary conditions were yet to be seen. Read more

A deputy governor at the People’s Bank of China has indirectly criticised the Fed’s $600bn stimulus plan, saying emerging market economies will have to stay alert for inflation and bubbles as a result of the scheme. Ma Delun also said the stimulus might also increase global imbalances, though it might help the US economy “to some extent”.

Similar comments – which amount to indirect accusations of selfish irresponsibility – were levelled by the Brazilian central bank governor on Friday. Henrique Meirelles said: “excess liquidity in the US is creating problems in other countries” and that this should be addressed at G20 meetings in South Korea.Read more

Using inflation-linked bonds to forecast inflation? Beware – new research suggests they are only decent predictors in the short-term. Over long horizons, the relationship is actually negative:

We showed that the break-even inflation is informative about future inflation over horizons of 3, 6, 24 and 30 months. For the 3- and 6-month horizons, besides being informative, break-even inflation is an unbiased estimator as well. However, over the horizons of 24 and 30 months, the relationship between the break-even and future inflations is negative. On the other hand, for the horizons of 12 and 18 months, breakeven inflation has almost no power to explain future inflation. Read more

No surprise from the monetary policy committee at Brazil’s central bank: its target overnight interest rate, known as the Selic, remains unchanged at 10.75 per cent a year, the committee announced on Wednesday evening after its latest meeting (held every six or seven weeks).

The Copom, as the committee is known, was unanimous in its decision, as were analysts in their expectation that this was what it would do. The bank was hardly likely to raise interest rates so soon after the finance ministry unleashed its latest weapons in the currency war, even if inflation expectations have been creeping up.

According to the central bank’s latest survey of market economists, published on Monday, consumer price inflation is expected to reach 5.2 per cent this year and 4.99 per cent in 2011, above the government’s target of 4.5 per cent. Expectations have been on the rise for the past five weeks. Meanwhile, economist at the bank’s “top 5″ institutions (those who most often get these things right) are predicting CPI of 5.31 per cent this year and 5.71 per cent in 2011. So it looks as though a big miss is on the cards, this year and next. Read more

Brazil’s central bank surprised many economists by raising interest rates by less than expected last week. Today, it published the minutes (in Portuguese only) of the monetary policy committee meeting at which the decision was taken. Anyone hoping they would make matters clearer may be disappointed.

As expected, the committee said weaker global and domestic demand had contributed to its decision. Less predictably, it suggested it would be happy to bring consumer price inflation in line with the government’s 4.5 per cent target only in early 2012, rather than during next year.

The minutes are clearly open to interpretation. In a note to clients, Itaú Unibanco said they confirmed its view that the committee, known as the Copom, would leave rates unchanged at its next meeting on August 31 and September 1. Barclays Capital, on the other hand, said they supported its call for a 50 basis point increase at the next meeting and a 25bp increase in October. Read more

With a short, sweet statement, the Bank of Brazil raised the key policy rate to 10.75 per cent late yesterday. A rise had been expected – some thought the rate would go to 11 per cent, in line with the two previous 75bp rises – to combat inflation. “Assessing the macroeconomic situation and prospects for inflation, the Committee decided unanimously to raise the Selic rate to 10.75% pa, without bias,” reads the statement (according to Google Translate).

This is the third consecutive rise since April 29, when the Selic target rate stood at 8.75 per cent; the rate was last increased on June 10.

It’s easy to get blasé about Brazil: the economy is thumping along; markets are relaxed about the forthcoming election; and nobody seems that excited – or even perturbed – by a further rise in interest rates on Wednesday.

So to wipe away any encroaching holiday stupor, consider this. Brazil probably has the highest real interest rates in the world, by a very fat margin (real interests being central bank rates minus inflation). And, by this evening after the central bank raises nominal rates by an expected 75 basis points to 11 per cent, they will be even higher still.

In the developed world, the historic real rate is about 3 per cent. But today, Japan excepted, real rates are all negative. They are about -1.5 per cent in the eurozone, and a chunky deflation-beating -2 per cent in the US and the UK. The emerging world should have a higher real cost of capital – because of risk, and perhaps lack of savings. Yet today, real rates are mostly negative in the emerging world as well. Read more

For the second time in a row, Brazil’s central bank has raised the Selic target rate by 75bp, as the economy expands rapidly and fears of inflation mount.

Historically, interest rates in the country are still low (see chart). Rates were last at 10.25 per cent in April of last year. The inflation target is currently 4.5 per cent +/- 2 per cent, and the data to May was rising, but within target, at 5.17 per cent. Read more

More on the debate about whether Brazil is overheating: Henrique Meirelles, central bank governor, weighed in today on the “No, it’s not” side with an assurance that inflation was under control, delivered on the sidelines of a meeting of G20 finance ministers and central bankers in Busan, South Korea.

He would say that, of course. The central bank has fielded a lot of criticism from market economists in recent months accusing it of being behind the curve in the fight against inflation. The bank raised its policy interest rate on April 28, its first rise since the last easing cycle, which lasted from January to July last year.

Critics say even the bigger-than-usual three quarter point increase was too little and too late to deal with Brazil’s ever faster pace of growth. Read more

Brazil’s central bank raised its core interest rate by three-quarters of a percentage point on Wednesday evening, confirming market expectations that it would act aggressively to deal with rising inflation and the threat of an overheating economy. Read more

Brazil’s central bank is expected to raise its core interest rate by as much as a full percentage point this evening as the unexpectedly fast pace of economic growth puts increasing pressure on prices.

Predictions for economic growth, inflation and interest rates at the end of 2010 have all risen sharply in recent weeks, adding to near-certainty among economists that the bank will raise its target overnight rate, known as the Selic, for the first time since September 10 2008 – less than a week before the collapse of Lehman Brothers and the ensuing global crisis took the pressure off an economy that was showing dangerous signs of overheating. Read more.

Some Latin American countries have made some less-than-orthodox decisions during the crisis. What does the IMF have to say about them? For the most part, Nicolás Eyzaguirre, the IMF’s director of the Western Hemisphere department, was, if not supportive, not critical either.

Asked at a presser during the IMF spring meetings about Argentina’s decision to pay back its debt using central bank reserves (a saga which felled one resistant central bank governor), Mr Eyzaguirre responded: “Each country decides on its own sovereignty how it’s going to decide with debt management, so we don’t have an opinion on that.”

He was also emphatic that the Fund had not objected to Brazil’s decision to tax capital inflows. “Our first reaction Read more

The central bank of Brazil has announced a rise in reserve requirements for larger banks, reversing the lower levels permitted during the crisis.

Two moves are intended to soak up 71bn reais ($39bn) from the Brazilian financial system: (1) reserve requirements for time deposits will be raised to 15 per cent from 13.5 per cent; (2) additional requirements for demand and time deposits will be raised to 8 per cent from 5 and 4, respectively. The moves will take place on March 22 and April 9. Read more

Brazil posted yet another monthly budget deficit in December, and, yet again, it’s not the economy getting a Keynesian boost. Before interest payments, the budget surplus was 2.06 per cent of GDP, significant, but still far below economists’ expectations. After interest payments, the economy posted a 13.9bn real deficit, up from 2.41bn real deficit in November, the country’s central bank said today in a statement. Brazil’s debt stands at 43 per cent of GDP.

A survey of 100 economists predicts Brazil’s Selic target rate will rise to 11.25 per cent by the end of 2010. The target rate is currently 8.75 per cent.

The previous survey, last week, forecast a year-end rate of 11 per cent. The survey, commissioned by the Brazilian central bank, predicts a fall to 11 per cent in 2011. “Food prices, the pace of economic activity and stimulus measures put gasoline in an already heated environment,” Fabio Akira, economist at JPMorgan, told Bloomberg. “We see the central bank raising rates as soon as March.”

Minutes from last week’s central bank meeting have countered rumours of an early rate rise in Brazil. The dovish notes forecast a “gradual recovery” with inflation “contained”. While the bank’s inflation forecast has risen since October, at 4.5 per cent it is hovering about the midpoint of the target range. The market reaction suggests traders do not expect a rate rise in the first quarter next year, meaning rates will remain at their record low of 8.75 per cent.

Brazil’s central bank said on Tuesday it will exchange $892m of foreign bonds from the federal government in its portfolio for domestic debt. The bank said in a statement the move was part of a plan to eliminate all holdings of Brazilian foreign debt in its portfolio, which at one point held as much as $4 billion worth of the securities. The debt swap will have no effect on Brazil’s international reserves, the bank said.

The Money Supply team

Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS

Claire Jones is the FT's Eurozone economy correspondent, based in Frankfurt. Prior to this, she was an economics reporter in London. Before joining the Financial Times, she was the editor of the Central Banking journal. Claire studied philosophy and economics at the London School of Economics. RSS

Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS

Sarah O’Connor is the FT’s economics correspondent in London. Before that, she was a Lex writer, covered the US economy from Washington and the Icelandic banking collapse from Reykjavik. Sarah studied Social and Political Sciences at Cambridge University and joined the FT in 2007. RSS

Ferdinando Giugliano is the FT's global economy news editor, based in London. Ferdinando holds a doctorate in economics from Oxford University, where he was also a lecturer, and has worked as a consultant for the Bank of Italy, the Economist Intelligence Unit and Oxera. He joined the FT in 2011 as a leader writer. RSS

Emily Cadman is an economics reporter at the FT, based in London. Prior to this, she worked as a data journalist and was head of interactive news at the Financial Times. She joined the FT in 2010, after working as a web editor at a variety of news organisations.
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Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS

Ben McLannahan covers markets and economics for the FT from Tokyo, and before that he wrote Lex notes from London and Hong Kong. He studied English at Cambridge University and joined the FT in 2007, after stints at the Economist Group and Institutional Investor. RSS